Toro 2014 Annual Report Download - page 38

trimmers and blowers contributed to our sales growth. However, Other Income, Net. Other income, net consists mainly of our
residential segment net sales in Australia were down due to proportionate share of income or losses from equity investments
unfavorable weather conditions and foreign currency exchange (affiliates), currency exchange rate gains and losses, litigation set-
rate changes. tlements and recoveries, interest income, and retail financing reve-
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Our overall net sales in international markets slightly increased nue. Other income for fiscal 2014 was $8.7 million compared to
by 1.2 percent in fiscal 2014 compared to fiscal 2013. However, $12.3 million in fiscal 2013, a decrease of $3.5 million. This
changes in foreign currency exchange rates reduced our total decrease in other income, net was primarily due to recovery for a
net sales by approximately $5 million in fiscal 2014. litigation settlement of $3 million last fiscal year that was not dupli-
cated in fiscal 2014 and higher foreign currency exchange rate
Gross Margin. Gross margin represents gross profit (net sales losses of $0.3 million in fiscal 2014 compared to fiscal 2013.
less cost of sales) as a percentage of net sales. See Note 1 of the
Notes to Consolidated Financial Statements, in the section entitled Provision for Income Taxes. The effective tax rate for fiscal
‘‘Cost of Sales,’’ for a description of expenses included in cost of 2014 was 32.2 percent compared to 31.7 percent in fiscal 2013.
sales. Gross margin slightly increased by 10 basis points to The increase in the effective tax rate was attributable to the benefit
35.6 percent in fiscal 2014 from 35.5 percent in fiscal 2013. This in fiscal 2013 for the retroactive reenactment of the domestic
improvement was mainly the result of the following factors: research tax credit, which expired on December 31, 2013. This
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Improved price realization. increase was partially offset by a discrete benefit relating to the
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Cost reduction efforts from productivity and process improve- change in tax accounting method filed that allowed us to recoup
ment initiatives. basis for previously disposed assets and changes in the mix of
international earnings.
Somewhat offsetting those positive factors were: We anticipate our tax rate for fiscal 2015 to be lower than our
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Lower proportion of professional segment sales that carry higher fiscal 2014 tax rate primarily due to the tax extenders bill that
average gross margins than our residential segment. resulted in the retroactive reenactment of the domestic research
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Unfavorable foreign currency exchange rate movements. tax credit within this bill.
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Slightly higher prices paid for commodities in fiscal 2014 com-
pared to fiscal 2013, mainly for steel and resins. Fiscal 2013 Compared With Fiscal 2012
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Costs for a supplier component rework issue that impacted cer-
tain walk power mowers. Net Sales. Worldwide net sales in fiscal 2013 were $2,041.4 mil-
lion compared to $1,958.7 million in fiscal 2012, an increase of
Selling, General, and Administrative Expense. SG&A expense 4.2 percent. This net sales improvement was attributable to the
increased $16.0 million, or 3.2 percent, in fiscal 2014 compared to following factors:
fiscal 2013. See Note 1 of the Notes to Consolidated Financial
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Increased shipments and demand for professional segment
Statements, in the section entitled ‘‘Selling, General, and Adminis- products, mainly landscape contractor equipment, the successful
trative Expense,’’ for a description of expenses included in SG&A introduction of new and enhanced products that were well
expense. SG&A expense rate represents SG&A expense as a per- received by customers, acceptance and demand for our drip irri-
centage of net sales. SG&A expense rate in fiscal 2014 decreased gation solutions in agricultural markets, and golf renovation
70 basis points to 23.5 percent compared to 24.2 percent in fiscal projects that drove demand for our golf irrigation systems. Addi-
2013 due to fixed SG&A costs spread over higher sales volumes. tionally, price increases introduced on some products, increased
However, the increase in SG&A expense of $16.0 million was sales and demand in the rental market, as well as incremental
driven mainly by the following factors: sales from acquisitions of $6.4 million, contributed to our net
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Increased sales and marketing expense of $6 million. sales growth in fiscal 2013.
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Continued investments in engineering and new product develop-
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Increased sales of Pope irrigation products in Australia, zero-turn
ment that resulted in higher expense of $5 million. radius riding mowers, and handheld trimmer and blower products
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Higher incentive compensation expense of $4 million as a result in our residential segment due to positive customer response to
of improved financial performance. newly introduced and enhanced products, as well as favorable
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Incremental costs from acquisitions of approximately $2 million. weather conditions.
Somewhat offsetting those increases in SG&A expense was a
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Higher international net sales primarily due to increased demand
decline in product liability expense of $2 million from favorable in the Europe, Middle East, and Africa (‘‘EMEA’’) region and
claims experience. Asia for micro-irrigation and golf equipment products. However,
changes in foreign currency exchange rates reduced our net
Interest Expense. Interest expense for fiscal 2014 decreased by sales by approximately $13 million in fiscal 2013.
4.8 percent compared to fiscal 2013 as a result of higher capital-
ized interest from capital projects.
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